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pany management would mean greater expense, which would come out of the rate payer. It wouldn't come out of the investor because the investor is guaranteed, or the operating company is guaranteed a fair return upon the value of the property.

Mr. CORCORAN. I think so far as the holding company investor is concerned, since you can freeze the situation in court for an indefinite length of time, that liquidation can be prevented.

Senator Bons. That is why I asked that. Senator Minton suggested that to my mind. A fair return is guaranteed under the regulatory systems and all in the world the company has to do is to file a new schedule of rates in order to bring its rates up to the level which will provide the return. How can an argument like that of a utility company be sound, in view of that situation? That is the reason I asked you that question. There is a guarantee that the company shall have a fair return on the value of its property and that if the return is inadequate to make the dividends that may legitimately be paid it can file a new schedule and make the proper showing

Mr. CORCORAN. Of course they cannot make any argument that the holding company investor is going to be hurt because, as I have shown, a court can freeze the investment situation of a holding company and liquidate it out with plenty of time, if it needs to be liquidated out, even if a particular situation cannot be worked out through a trust arrangement to create regional operating companies out of the old holding companies.

Senator BONE. The argument that we were just discussing would negative all the regulatory measures in the United States and it would simply set at naught and defiance everything in regard to regulation that has been done in the past 30 years; that is true, isn't it?


Senator BONE. When they say the investor would be hurt and the investor in the operating company, that means that this law in effect would wipe out all State regulation that is on the statute books. Isn't that so? In other words, the investor will no longer get a return on his stock because the company could not make the earnings, whereas now the company can go before a regulatory body and it would have to be doing something violative of decent business practices if it were not given the opportunity to secure a fair return on the investment. And the argument that the big operating companies, sometimes with mililons of dollars at their disposal, cannot hire good brains in this country is a stupid argument. These holding companies send a man out from Boston, and he is picked out to run the operating company's plant. Mr. CORCORAN. Just one last point. The CHAIRMAN. You started to answer point 3.

Mr. CORCORAN. In Mr. Gadsden's brief there were implied three subpoints in Mr. Gadsden's argument, which I was simply dividing up for answering.

There is one more point I would like to raise with you because you will hear talk on it. The holding companies will say, "Now, look at all the litigation there was in the Reading dissolution, the Standard Oil dissolution and the American Tobacco dissolution, and see how badly the investor was hurt."


The Wall Street Journal carried an opinion the other day the small investor would not stand a Chinaman's chance with speculation if the action proposed in this bill was carried out.

Now, the facts in the Standard Oil are these: At the start of the Standard Oil dissolution the stocks started somewhere around 600, when the dissolution proceedings started. At the beginning of the dissolution it did drop to 500, but after that drop it went up to 1200, the highest point it has ever reached I will venture to say that during the years the Reading case was in litigation the average investor in Reading stock scarcely knew that the lawsuit was going on. And in proceedings under this bill the Securities and Exchange Commission will be available to help the court with really expert advice on reorganization and market reactions, as the court had no one to help it in the Reading case and the Standard Oil case and the Tobacco


The CHAIRMAN. Let me ask you: Do you know how much the Electric Bond & Share Co. stock dropped from 1929? What was its peak in 1929, do you know?

A VOICE. One eight nine.
The CHAIRMAN. It dropped down to what?

The Voice. Down to 5, then they split it three ways and made it 15.

The CHAIRMAN. So the point that I wanted to make was this, that as a matter of fact, of course, no legislation has been passed that made that stock drop from 189 down to 5. So that there wasn't any: thing that has been passed thus far by the Congress of the United States or the regulatory bodies throughout the United States that made it drop to that point, and the same thing is true to a more or less extent with reference to every other utility holding company throughout the United States.

Senator MIXTON. Let me ask one question about the financing.

Senator MINTON. As I understand it, one of the chief arguments made by the holding company in justification of its existence is the service it renders to operating companies in the field of finance.

Mr. CORCORAN. Yes, sir.

Mr. MINTON. And isn't it a fact that about the only service they render is what we might term that of a broker!

Mr. CORCORAN. That is right.
Mr. MINTON. That is the fact, is it not?

Mr. (ERCORAN. It has to be just a broker's service because they cannot rarry the securities indefinitely themselves.

Mr. Mintox. And there is nothing put up by the holding company in the way of security; that is, put up with the banker or the investor as security for the money they got for the operating company?

Mr. CORCORAN. Yes; there are always the securities of the operating company.

Senator Mintox. So they contribute nothing except really the services of a broker in borrowing the money?

Mr. CORCORAX. They will also sometimes hold an issue off the market for a short time. That is they not only will arrange for the money, but they may hold the issue themselves for a couple of months

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for a more favorable market. But what they do is a banker's function, it isn't a management company's function. And if the securities are good enough for the holding company to take a chance on them as a banker, the operating company can find another banker.

Senator Bone. Isn't that more in the nature of an agency, acting as a broker? Mr. CORCORAN. That is it. Thank

you. Senator Bone. Is there security ?

Mr. CORCORAN. Yes; the security is that of underlying operating company security.

The CHAIRMAN. Have you concluded? Mr. CORCORAN. Yes, sir. The CHAIRMAN. We will recess until tomorrow morning at 10 o'clock.

NEW YORK, N. Y., April 19, 1935. T. G. CORCORAN,

Reconstruction Finance Corporation, Washington, D. C.: Your testimony before the Senate committee was to effect that operating companies are practically always capitalized with common stock, preferred stock, debentures, bonds, or other securities without the right to vote, and that only the common stock is usually owned by the holding company. Your information in that respect is entirely erroneous. A vice president of Associated Gas & Electric Co. testified on April 3 before the Ilouse committee to the effect that 74 operating companies within the Associated System had no securities of any kind outstanding with public, and that the system was continuously engaged in retiring underlying capitalization held by the public. He also tes. tified that every subsidiary of New England Gas & Electric Association except one is 100 percent owned without any securities of any kind held by the public, and the company excepted has only a small amount of common stock held by the public which New England has been unable to acquire to date, that company being New Bedford, has no preferred stock, bonds, notes, or anything like it in the hands of the public. In view of incorrect impression left by you on the committee, we would suggest that you familiarize yourself with the foregoing and correct your testimony before the Senate committee.

ASSOCIATED GAS & ELECTRIC Co. (Whereupon, at 1:10 p. m., a recess was taken until 10 a. m., Apr. 19, 1935.)



FRIDAY, APRIL 19, 1935


Washington, D.C. The committee met, pursuant to adjournment on yesterday, at 10 a. m., in room 412, Senate Office Building, Senator Burton K. Wheeler presiding.

Present: Senators Wheeler (chairman), Wagner, Barkley, Lonergan, Bone, Minton, Truman, Couzens, Hastings, White, and Shipstead.

The CHAIRMAN. The committee will please come to order. Mr. DeVane, you may state your name to the committee.



Mr. DEVANE. Mr. Chairman, my name is Dozier A. De Vane. The CHAIRMAN. What is your business, profession, or occupation ? Mr. DEVANE. I am a lawyer, and solicitor for the Federal Power Commission. The CHAIRMAN. How long have you occupied that position ? Mr. DEVANE. Since November of 1933. The CHAIRMAN. Prior to that time you were what? Mr. DEVANE. I have been engaged in public-utility work since 1918, when I became counsel for the Railroad Commission of Florida.

The CHAIRMAN. All right. Mr. De Vane, do you have a statement prepared that you wish to make to the committee?

Mr. DEVANE. I am here, Mr. Chairman, to discuss title II of the Wheeler bill, S. 1725.

The CHAIRMAN. Will you please speak up loud enough so that everyone in the room may hear you?

Mr. DEVANE. Mr. Corcoran explained to you yesterday how title I was prepared and its purpose. He also made reference to the fact that title II of the bill was prepared by the Federal Power Commission, and as Solicitor for that Commission I participated in the preparation of title II of the bill. The CHAIRMAN. You may proceed.

Senator WHITE. Let me ask you right there: At what page of the bill does title II begin?

Mr. DEVANE. It begins on page 78 of the Wheeler bill. The title
II that I referred to, however, begins on page 104 with section 201.
page 78 of the bill there is proposed certain amendments to cer-

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